June 20, 2013

How well did the Turkish economy do over the last decade?

There has been much discussion in Turkey in recent days
about the performance of the economy under the AKP government, occasioned in
part by an exchange I had with
Minister of Finance Mehmet Şimşek.

The Turkish government likes to claim that the
GDP expanded by more than three-fold between 2002 and 2012. This is a
misleading number, as it is based on the dollar valuation of Turkish GDP at
current prices, and hence lumps both dollar inflation and the real appreciation
of the Turkish lira on top of real growth. Calculated properly, real GDP (or
GDP at constant prices) rose by 64 percent during 2002-2012, and real GDP per
capita by 43 percent.*

This is not a bad record of growth. An increase of 43
percent in income per capita over a decade implies an annual growth rate of 3.6
percent. This is a performance that matches that of Turkey’s previous
high-growth period (1960-78) and exceeds anything experienced since.

In 2002, Turkey was just coming out of a severe financial
crisis, so there is a case to be made that any growth calculation that takes
2002 as the base year mixes up real growth with the bounce back from the crisis.
There is also the question of sustainability, as growth has been fuelled by
large current account deficits in the recent period. I will not elaborate on these
issues in the present discussion. (See here
for a more analytical look at Turkey’s recent growth experience.)

However, an important issue that is frequently overlooked is
the conjunctural and comparative dimension. The last decade has been an
exceptionally good one for developing countries as a whole. When Turkey’s
performance is compared to the average for emerging and developing countries,
it hardly looks distinguished. This can be seen from the figure below.

Source: Conference Board database

The figure shows that Turkish performance lagged
significantly behind emerging and developing economies as a group. In the
latter, real GDP rose by 95% compared to Turkey’s 64%. Real GDP in large emerging markets such as
China, India, Bangladesh, and Indonesia all grew more rapidly than Turkey, as
it did in many smaller African and Latin American countries.

Turkey’s rank in global GDP tables improved slightly over the
decade. In purchasing-power adjusted terms, Turkey went from 17th to
16th in global GDP rankings (surpassing Australia). Measured at current exchange rates, it rose
from 21st to 17th (surpassing Taiwan, Switzerland,
Belgium, Netherlands, Sweden, but falling behind Indonesia). (Note that comparisons of rankings over time using current dollars can be misleading for the same reason noted above, namely movements in real exchange rates.)

Bottom line: Turkey did well relative to advanced countries,
and closed the income gap with them. But its performance benchmarked against
the most relevant comparators, emerging and developing countries, was not
distinguished.

*For Turkish readers, there are good accounts of real-nominal
measurement issues by Ege
Cansen, Ugur
Gurses, and Aykut
Kibritcioglu. Also, a technical digression may be useful here. A real appreciation of the curency may reflect an external terms of trade improvement. In that case, it would represent a gain in the purchasing power of domestic output. However, there has not been a trend improvement in Turkey's terms of trade over the 2002-2012 period. Turkish real appreciation has little relation to the changes in its terms of trade, and seems to be driven largely by changes in domestic relative prices (nontradables versus tradables.)

Thanks for the post, it is helpful. However, I would like you to elaborate more on the definition "emerging and developing economies" given in the graph.

1) Who are these economies? How many countries have been taken into account? How were the values averaged? (Because different currencies are used in every country)
2) How was the population change in these countries? How is Turkey's real GDP per capita is doing compared to these countries? (Because Turkey's population hasn't changed much)

With these data, we can much better understand Turkey's position in the global economy. Any further input is appreciated Mr. Rodrik.

I am no expert on these matters such as yourself. But I was under the impression that the best indicator of economic growth is based on comparative per person GDP figures in USD, normalized through PPP (purchasing power parity). That is in fact the method used by the IMF, the World Bank and OECD when they publish comparative growth figures for countries. Also, please correct me if I am wrong, but using these figures it can be asserted that the average income per person in Turkey has grown to levels of 2.5-3 times of the 2002 figures. Would you dispute that?

The PPP numbers are much higher. However, they are stated in terms of current dollars, not constant dollars.

From 2002 to 2012 the GDP deflator for the U.S. rose 25.154%. If you deflate the PPP numbers for Turkey using the U.S. GDP deflator you get numbers very close to the constant national currency (Lira) numbers for Turkey.

I did a more extensive research about 24 developing economies(including Turkey) over 18 criteria to compare AKP's rule(2003-11) to previous coalitions period(1993-2002)using Worldbank data. It looks like on 10 of the criteria Coalition (1993-2002) performed better among developing economies vs AKP's 8. You can see details on my facebook page.And just to be clear i started to post it 3 days before this post and it is in Turkish if anyone is interested i ll be willing to help

China is an exceptional case, a comparison to emerging economies excluding China would make more sense. But still, a mere comparison to other developing economies should not be the only criteria to evaluate AKP's economic performance unless you wanna end up saying previous government has performed better although they have led Turkey into worst financial crisis in decades.

Firstly what is the purpose of this article specifically about Turkey?? (Unless you do it for all other countries,then can you please give us the address or the link of your other country studies so we can refer to them for our comparative learning). By the way, you were writing political articles agains the current government of Turkey, maybe as bitter as a domestic opposition party why is that?? ....can it be due to your personal relation to a Turkish Army ex-General who was being trialled for plotting against the Government (this General is the father of your wife, right?). Anyway, despite your efforts to prove that Turkey's government was not that successful in the last decade, in fact you yourself proved with your worst estimate that 'the real GDP rose by 64%' :) you are contradicting with yourself! What is the conclusion of this article?? 'The Turkish Government did well in the last decade but not perfect'?? [P.s. turkey real GDP 2002: $230bn vs GDP 2013: $820bn]

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